DOL Fiduciary Rule Officially Dead
The Fifth Circuit Court of Appeals has issued its mandate effectively killing the Department of Labor’s fiduciary rule which attempted to eliminate conflicted retirement investment advice by placing certain restrictions on commission-based product recommendations.
After a six-week delay, the Fifth Circuit Court of Appeals has issued its mandate killing the Department of Labor’s fiduciary rule which attempted to eliminate conflicted retirement investment advice by placing certain restrictions on commission-based product recommendations. The mandate was expected on May 7th.
“It is ordered and adjudged that the judgment of the District Court is reversed and vacate the fiduciary rule in toto (meaning in its entirety),” the mandate states. The DOL must also pay the plaintiff’s court costs related to the appeal.
Plaintiffs in the Fifth Circuit case include the U.S. Chamber of Commerce, Securities Industry and Financial Markets Association, Financial Services Institute, Securities Industry and Financial Markets Association, among others.
The Fifth Circuit vacated the controversial regulation in a 2-1 split decision, ruling that the DOL overstepped its authority in the investment advice arena. Last week, the DOL missed the deadline to appeal to the Supreme Court to the dismay of many rule proponents, including AARP and three attorneys general, whose unsuccessful last-ditch efforts to save the rule ultimately failed.
“The SEC has the expertise and authority to regulate brokers and dealers uniformly,” said the judges in their 65-page opinion. “DOL has no such statutory warrant, but far from confining the fiduciary rule to IRA investors’ transactions, DOL’s regulations effect dramatic industry-wide changes because it is impractical to separate IRA transactions from non-IRA securities advice and brokerage.”
“Rather than infringing on SEC turf, DOL ought to have deferred to Congress’s very specific Dodd-Frank delegations and conferred with and supported SEC practices to assist IRA and all other individual investors,” they added.
The fiduciary rule, which sought to redefine who is considered an investment advice fiduciary under the Employee Retirement Income Security Act of 1974, opened fierce debate on both sides of the issue.
Critics claimed the rule would be costly to implement and could introduce liability that would essentially end access to financial advice by retirement saviors of modest means who could not afford to pay directly for professional financial advice. Proponents argued that the rule was necessary to provide valuable safeguards to those very same investors.
With the DOL fiduciary rule dissolved, the Securities and Exchange Commission has taken the reins and is putting forth its own broker advice rules that are currently open for public comment.
